10 April, 2017

Demystifying Alexander Nahum Sack and the doctrine of odious debt

Eric
Tousaint’s study of the odious debt doctrine

by
Eric Toussaint

Part
17 - Sack’s conception of odious debt

Now
we can look at the conditions for what Sack would call odious debt.

The
excerpt from Sack’s book on the subject that is the most referred
to can be confusing. “If a despotic power contracts debt, not
for the needs and interest of the State, but to strengthen its
despotic regime, to oppress the population that combats it, that debt
is odious for the whole State. The debt need not be recognised by the
Nation: it is a debt of the regime, a personal debt of the power that
contracted it and consequently falls along with the power that
contracted it.” (p. 157) “These ‘odious’ debts cannot
be considered to be a liability of the State’s territory because
one of the necessary conditions that determine the regularity of
State debt is missing; a State’s debts must be incurred and the
funds thus made available used for the needs and in the interests of
the State. ‘Odious’ debts incurred and used, with creditors’
foreknowledge, for purposes that are not in the interests of the
Nation do not engage the Nation, should the Nation rid itself of the
government that incurred them (…). The creditors have committed a
hostile act towards the people; they cannot therefore hold the people
responsible for the debts that a despotic power incurred against the
people’s interest and are the personal debts of the despotic
regime.” (p. 158)

Many
of the remarks on this excerpt conclude that Sack pretends that for a
debt to be “odious” it has to be contracted by a despotic regime.
This is not Sack’s position. In fact, as a lawyer he considered
that several circumstances could give rise to debt of an odious
character. The above quote mentions only one possible circumstance.

There
are others. Five pages further on Sack gives more general criteria
for defining an odious debt. In this wider definition, he does not
mention despotic regimes: “Consequently, for a debt, regularly
incurred by a regular government to be considered incontestably
odious with all the consequences that follow, the following
conditions must be fulfilled:

1.
— The new government must prove and an international tribunal
recognise that the following is established:

a)
that the purpose which the former government wanted to cover by the
debt in question was odious and clearly against the interests of the
population of the whole or part of the territory, and

b)
that the creditors, at the moment of the issuance of the loan, were
aware of its odious purpose.

2.
— once these two points are established, the burden of proof that
the funds were used for the general or special needs of the State and
were not of an odious character, would be upon the creditors .”

Here,
Sack very clearly says that a regular government’s debts may also
be odious: “for a debt, regularly incurred by a regular
government to be considered incontestably odious with all the
consequences that follow,…”

Sack
defines a regular government as follows: “By a regular
government is to be understood the supreme power that effectively
exists within the limits of a given territory. Whether that
government be monarchical (absolute or limited) or republican;
whether it functions by “the grace of God” or “the will of the
people”; whether it express “the will of the people” or not, of
all the people or only of some; whether it be legally established or
not, etc., none of that is relevant to the problem we are concerned
with.” (p. 6)

So,
in fact, there is no doubt about Sack’s position: that a regime be
despotic is not a sine qua non condition that makes debts odious and
susceptible to repudiation. According to Sack, all regular
governments, whether despotic or democratic of some kind, may be
accused of having agreed to odious debts.

What
are the two criteria that establish a debt as odious? Looking again
at Sack’s remarks we see: — The new government must prove and an
international tribunal recognise that the following is established:

a)
that the purpose which the former government wanted to cover by the
debt in question was odious and clearly against the interests of the
population of the whole or part of the territory, and

b)
that the creditors, at the moment of the issuance of the loan, were
aware of its odious purpose.

We
can summarise as: a debt is odious if it has been incurred against
the interests of the population and the creditors were aware of this
at the time.

In
an opinion published in 2002 by the IMF review Finance &
Development Michael Kremer and Seema Jayachandran define the odious
debt doctrine as: “The legal doctrine of odious debt makes an
analogous argument that sovereign debt incurred without the consent
of the people and not benefiting the people is odious and should not
be transferable to a successor government, especially if creditors
are aware of these facts in advance.”

This
summary is at first sight convincing and does not mention, as an
obligatory condition, the despotic nature of a regime. However,
closer scrutiny shows that one of the conditions mentioned by the
authors is not mentioned by Sack. Namely: “it is incurred
without the consent of the people.” The fact that Sack does not
mention this condition is quite coherent with his position that the
nature of the government is of no importance in this matter.

If
some readers still have doubts about Sack’s position concerning
despotic regimes, here is another quote: “Even when a despotic
power is overthrown by another despotic power that is no less
despotic and no more reflective of the will of the people, the odious
debts of the fallen power remain the personal debts of the regime and
the new power is not liable for them” (p. 158). For Sack only
the purpose of the funds and the creditors’ knowledge of that
purpose are the important elements.